Offer accepted on a duplex that severely violates the 1% rule.

[Emilio Attardo]

Hello BiggerPockets!

I live in Middlesex County NJ with my fiance. We have been staying rent free at her parents for about 6 months since our apartment lease ended. For the past year we have been looking for an investment/first home purchase. We were looking at live in fix and flips and small multis up until about March of this year when we pivoted to focus strictly on house hacking. The idea behind that was since the price of materials have gone up so much, buying a house that needed a 15 or 20k rehab would actually cost us 30 or 40k, and could prohibit us from buying another home next year. Our goal is to buy a house every year for the next 5 years.

Now we have an offer accepted on a duplex in South Amboy NJ. Its the first time we actually played the "offer over asking" game and we ended up winning. I have to say it doesn't really feel like we're winning anything. We are still in Attorney Review and I'm not sure if it's buyers fatigue or if I'm actually realizing the numbers are as bad as they are.

List price: $525,000

Offer: $535,000 full inspection and appraisal contingencies

Down payment: $80,000 (15%)

Taxes: $9,000

Monthly PITI $2,950

The property is a top / bottom duplex with 2bed/1bath in each unit.

Currently fully owner occupied, the potential rents are 1950 in each unit making total monthly income around $3900

So as you can see we are very far off the 1% rule (0.85% is more common for my area but in this case it's 0.73%)

As a house hack, we'd be living for about $1,000/mo. That is semi cheap for what we'd be getting in our area, but we need to come out of pocket almost 100k to have the opportunity. Doesn't feel like a win.

We plan to finish the attic to add a 3rd bedroom in the upstairs unit, spending about $3000. When this is accomplished the 3/1 upstairs will rent for 2200-2300.

SO, after we move out, here are the numbers.

1950 + 2200 = 4150 gross monthly income

4150 - 5% capex - 5% maintenance - 5% vacancy - 5% management = 3320

3320 - 2950 = $370/mo in cash flow

370*12 = $4440

4440/105000 = 4.2% Cash on Cash return.

Now the whole point behind this post is I am worried I am sacrificing finding a better deal, a better use of our money, just to get started investing in real estate and to have a place to live. I feel like I'm throwing up my hands and saying "in this market and in this area that's the best I can do"

We've put so many offers out on homes with better numbers but we've been outbid every time.

Every week when I see new houses that come on the market I think to myself "I can't imagine how anyone's making money buying at those prices" and now I am in the same position.

I've read a few posts about duplexes under appraising and people in similar situations to mine. I'm thankful we are still in AR and I have a day or two to receive feedback from this wonderful community that has taught me so much.

Sorry for the long post and if you're still with me thank you so much for reading.

Much love,

Emilio